Growing with India’s Realty Sector

The year 2017 started off with several optimistic reports on the promising opportunities offered by India’s realty sector. On the back of sweeping regulatory reforms in 2016, which have emphasised transparency and accountability, industry experts have surmised that despite a disappointing performance in 2016, the sector is poised for growth and consolidation in 2017. However, before following the crowd of enthused investors, it is crucial to assess the actual impact of the recent changes and newfound opportunities alongside the threats that continue to jeopardise the industry.

Erosion of Trust

The real estate industry in India has been associated with money laundering (benami properties1), bribes for regulatory approvals, unrealistic property valuations, fraudulent developers (diversion/ siphoning of investor funds, false promises, title frauds and deviation from approved plans), and project delays. Therefore, it is not surprising that home buyers and investors alike are wary of investing in new realty projects, especially in the residential segment.

A third of over 2.5 million apartments in the top cities launched between 2008 and 2014 have been delayed by at least a year.2 As a result, consumers are choosing to walk away from unfair or obscure deals and are exercising extreme caution before purchasing property. Furthermore, buyers are displaying preference for ready-to-move homes despite the higher cost. The widening trust deficit between home buyers and developers is further evident in the growing number of court cases involving these two groups.

1 Benami means property without a name. In such transactions, the person who pays for the property does not buy it under his/her own name. The person whose name the property has been purchased under is called the benamdar and the purchased property is called the benami property. The person who finances the deal is the real owner.2 Sharma, Ravi Teja and Babar, Kailash (March 10, 2016). With builders not completing projects on time, home buyers take charge to finish their projects. The Economic Times: http://economictimes.indiatimes.com/articleshow/51335235.cms